Money Laundering has a colossal and detrimental impact on the economies across the globe. According to the United Nations Office, 2-5% of global GDP comprising the potential of $800 billion to $2 trillion US dollars are consumed through laundering practices. In a single year, 2019, $10.02 billion sum of fines were filed against banks where they were traced for not complying with the set regulations thwarting a risk-free banking ecosystem. KYC is a well-crafted framework of regulations that prevent proving the legitimacy of “disguised” illegal funds and offers a suspicious free banking environment where knowing customers’ requirements is of utmost importance to provide adequate value in return. In order to achieve and secure the information about the customers a checklist is devised to meet their needs and demands along with the measures to abide by AML rules and regulations.
What is KYC Verification?
The underlying objective of KYC Verification is to make sure that the customer is “real” and “claiming” what they truly are at the time of onboarding. KYC aims to safeguard the identity of the customers, making an environment free from fraud and removing the threat of identity fraud. It helps identify the potential customers at the time of onboarding. KYC drafts a guideline adopted by the US Financial Crimes Enforcement Network (FinCEN). It is a crucial requirement for financial institutions and all associated businesses to comply with KYC services and checklists. The profound elements include:
- Customer acceptance policy (CAP)
- Customer identification procedure (CIP)
- Transaction monitoring
- Risk management
Under the KYC canopy, the CAP regulations harness details that are required to tie a bond between the business and their customer where all sorts of regulations are accepted and made sure abided by. It helps determine the risk thresholds where financial interactions take place. An outline is produced setting eligibility criteria that demand necessary documents that are needed by the organization at times of onboarding.
Benefits of KYC Verification
KYC verification ensures the legitimacy of the customers who they claim to be. This further claims the protection levels while halting the paths of criminal businesses that can pose negative consequences. Know Your Customer yields a risk assessment of potential customers and entities to abide by the regulations to avoid potential losses and eliminate risks. It provides an insightful relationship between the institute and the customers where it is made sure that no harm can be done from the customer’s end and in return adequate services will be available by the organization
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Identity theft can be avoided:
KYC Verification demands proof of the customer’s identity. This mandatory effort makes things harder for threat actors to conceive fraudulent accounts where documents are mended and forged.
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Avoidance of financial fraud:
prevention of opening fake accounts, validating and identifying customers to make sure the clients they are dealing correct entities to access multiple services
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Eliminating Money Laundering:
KYC verification and checks can help outcast frauds and keep the “bad” customers at bay and impersonate them as real customers using stolen IDs and opening potential fake accounts to steal and forge money.
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Combating Fake Accounts:
setting regulations and policies to make it harder for the money launderers to actually commit the sin of stealing money through fake accounts. Such transactions are kept under the radar and an alert is announced against such customers after suspicious activities.
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Blocking Suspects:
KYC verification checks the names of people who intend to open accounts violating the guidelines and can block suspected terrorists or “bad customers” from using the financial services of an organization. With the aid of KYC, government agencies can track money at ease that is being generated and transferred for terrorist agendas.
Final Word
KYC is a means of assessing, with the help of financial institutions, whether the registered clients are abiding by the regulations and policies devised by the organization. This KYC process allows the unfolding and monitoring of customers that are hoarding potential risk against the institution. Through the onboarding process, KYC allows the company to target and eliminate criminal acts of laundering, terrorism financing and illegal political corruption cases. This allows companies to actively involve themselves to halt a safer passage of dirty money polluting the organizational finances. Affirming the strict enforcement actions e.g., fines and heavy penalties, companies that have their hands involved can be targeted at a greater ease. In the last decade, US, Europe, the Middle East and the Asia Pacific were fined $26 billion for not complying with the policies that were signed by the companies themselves at the time of onboarding.
